- Washington decision making is likely to become more fractious regardless of the election result. Divisions between and within the Republican and Democratic parties have been growing, and an outcome whereby neither party would have a significant majority in the House of Representatives is a possibility. This could make it harder to reach consensus on legislation, potentially heralding a return to dramatic showdowns over budget issues.
- Corporate tax reform and increased spending on infrastructure appear to have some bipartisan support — and would be a ripe area for negotiation in a divided Congress. We see this as part of a global pivot toward greater fiscal spending as monetary easing reaches its limits of effectiveness. Infrastructure spending should boost growth more than usual amid rock-bottom rates, in our view. We offer some of our own policy recommendations, including steps to address a looming retirement crisis.
- A growing backlash against free trade and immigration threatens to make economies more insular — at a time when economic growth and productivity in many regions are barely above stall speed. Emerging markets have the most to lose, especially under a victory by Republican nominee Donald Trump. Mexico is a clear potential loser given its heavy reliance on exports to the U.S.
- The U.S. election campaign suggests rising populist sentiment is likely here to stay. We also see potential changes to income taxes, with ripple effects on U.S. municipal bonds. We focus on two sectors that could be most affected by the election: financials and healthcare. Mergers and acquisitions are set to face increased scrutiny if Democratic nominee Hillary Clinton prevails, as her party appears to view anti-trust enforcement as a tool to boost competition and address inequality.
Share of population in groups with flat or falling income,2004-2014
A polarizing U.S. election echoes a surge in populism around the world, also reflected in the UK’s recent Brexit vote. Rising inequality and a sense that economic growth has only benefited few are leading to a backlash against free trade and immigration. Incomes for 81% of the U.S. population were flat or falling from 2004 to 2014, mirroring a trend in other developed nations, as the chart above shows
Donald Trump is running with a populist agenda that departs from decades of Republican tradition. Democrat Hillary Clinton has leaned to the left, supporting higher taxes on the wealthy and raising the minimum wage.
Whoever wins the White House will have to deal with waning support for globalization, which the U.S. has advocated for and benefited from for decades. The shrinking middle ground for policymaking in Washington, however, is likely to make this an uphill battle.
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